An Asian option (or average value option) is a special type of option contract. For Asian options the payoff is determined by the average underlying price over some pre-set period of time. This is different from the case of the usual European option and American option, where the payoff of the option contract depends on the price of the underlying instrument at exercise; Asian options are thus one of the basic forms of exotic options.
One advantage of Asian options is that these reduce the risk of market manipulation of the underlying instrument at maturity. Another advantage of Asian options involves the relative cost of Asian options compared to European or American options. Because of the averaging feature, Asian options reduce the volatility inherent in the option; therefore, Asian options are typically cheaper than European or American options. This can be an advantage for corporations that are subject to the FASB revised Statement No. 123, which requires that corporations expense employee stock options.
Read more about Asian Option: History, Permutations of Asian Option, Types of Averaging, Pricing of Asian Options
Famous quotes containing the words asian and/or option:
“Exploitation and oppression is not a matter of race. It is the system, the apparatus of world-wide brigandage called imperialism, which made the Powers behave the way they did. I have no illusions on this score, nor do I believe that any Asian nation or African nation, in the same state of dominance, and with the same system of colonial profit-amassing and plunder, would have behaved otherwise.”
—Han Suyin (b. 1917)
“Our passional nature not only lawfully may, but must, decide an option between propositions, whenever it is a genuine option that cannot by its nature be decided on intellectual grounds; for to say, under such circumstances, “Do not decide, but leave the question open,” is itself a passional decision—just like deciding yes or no—and is attended with the same risk of losing the truth.”
—William James (1842–1910)